Israel's Two-year Austerity Budget

Netanyahu's Compromise for Israel's Budget: Cut NIS 3 Billion From Defense

Israel's cabinet expected to approve 2013-2014 budget after marathon talks and public outrage over austerity measures; treasury had been demanding NIS 4 billion cut from defense, while the defense establishment wants increase of NIS 2-3 billion.

Prime Minister Benjamin Netanyahu announced Monday that the defense budget would be cut by NIS 3 billion in the 2013-2014 budget, offering a compromise solution to placate the demands of both the treasury and the defense establishment.

Netanyahu's cabinet was expected to approve the full two-year budget late Monday, following marathon deliberations of its items, which are expected to include further last-minute changes following the severe public criticism of Finance Minister Yair Lapid's economic plan.

The treasury has been busy considering changes that would soften the budget's effect on taxpayers. They include lessening the proposed tax hike on those selling their home and buying a new one.

However, the problem with these and other possible alterations is that the treasury has no intention of increasing the budget deficit any further - above the planned deficit ceiling of 4.65 percent of gross domestic product for 2013 and 3 percent for 2014 - and any such changes would require raising taxes elsewhere.

The security cabinet held a long discussion Sunday on the defense portion of the new two-year budget, but the decision on cuts in the defense budget was passed on to Mondays meeting of the full cabinet.

Both the Finance Ministry and Defense Ministry remained firm in their positions on defense spending as of Sunday night: The treasury had demanded a NIS 4 billion cut in the defense budget while the Defense Ministry actually demanded an additional NIS 2-3 billion, as well as funding commitments for beyond 2014 so it can carry out its five-year defense plan. Both sides rejected Netanyahu's prior proposals for flexibility.

Lapid and senior treasury officials had reiterated their warnings that if their proposed defense cuts were not made, there would be a need to make further cuts in health, welfare, education and infrastructure spending.

Netanyahu insisted on Monday, however, that the decision not to cut the defense budget according to the treasury's full demands would not have any negative impact on these other sectors.

“I decided to moderate the proposed cutback in the defense budget by a billion shekels - an amount that won’t come at the public’s expense,” Netanyahu told the security cabinet. “The IDF, with all its commanders, soldiers and weapons, is vital to the security of the State of Israel in both defense and offense, and we still need the Iron Dome. The course I propose will allow us to achieve that. It is the right compromise.”

Treasury officials had already been preparing proposals of what else to cut and other changes in Lapid's economic plan if the defense cuts were not approved - especially in light of the harsh criticism of the budget proposal from the public, Knesset members and ministers.

Lapid and the treasury officials told the security cabinet during deliberations on Sunday that the defense establishment has fat that can be cut, and in recent years has received generous additional funding over and above the approved budgets. In 2012, the defense budget reached an all-time high of NIS 60.5 billion because the defense establishment had not made itself more efficient as it agreed to, said the treasury officials. In light of the economic situation and the large cuts looming in education, health, welfare and elsewhere, defense must also "share the burden," they said.

A NIS 4 billion cut this year would have returned the defense budget to its already extremely high base spending level planned for 2012, as originally approved in the previous two-year budget.

After the cabinet approves the budget for 2013-2014, it will go to the Knesset for approval. It must be presented to the Knesset no later than June 10. The Knesset must approve the budget by July 30, and the new budget would take effect as of August 1. Until the new budget takes effect, the state will continue spending this year based on one-twelfth of 2012 budget expenditures per month.

MKs angered by 'softened' cuts to defense budget

Meretz chairwoman Zahava Gal-On criticized Netanyahu's decision to soften the cutback in the defense budget to NIS 3 billion, calling it a missed opportunity to reallocate funds toward other sectors:

“The Finance Ministry has once again surrendered to the threats of the defense establishment, which gets billions of shekels every year without supervision or control. A larger cutback for the Defense Ministry is needed," she said.

“Every year, tens of billions of shekels are transferred to the defense establishment beyond its original annual budget. It goes over the original amount by about NIS 10 billion a year, on average. These enormous sums are allocated to the defense establishment with no control, strategic discussion of priorities or real supervision by the Knesset or by the Finance Ministry.”

“The 2013–2014 budget is an opportunity to trim the fat of the defense establishment, streamline it and gradually reduce its budget, which will allow for a softening of the general cutbacks and free more funds for education, welfare and health," Gal-On added.

Opposition head Shelly Yacimovich leader also lambasted the move as indicative of Lapid's inability to effect the changed he had promised.

“It’s amazing that suddenly, a billion shekels was found in the reserve so that a cutback in the defense budget could be averted. Yet those same reserves could not be found and used to avert an increase in VAT, which will affect the poor and the middle class, or to prevent cutbacks to vital ministries such as the Health Ministry and the Education Ministry," said Yacimovich. "The finance minister must immediately state all the reserves available to the country and clarify how priorities will be set in using them.”

 “There are no grounds for making this decision, because experience has shown time and again that when it comes to actions, the defense budget gets back not only what was cut from it, but also additional funds that go far beyond it without any deep discussion, and that’s how it will be this time too," said Yacimovich. "Not surprisingly, the discussion about the defense budget completely resembles the discussions of past years. Here too, all pretense of ‘the new politics’ that Lapid touted as he deceived his constituency has vanished without a trace.”

Tomer Appelbaum